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Topic Solvency Accounting

Article from BaFin's 2017 annual report

On 13 July 2017, the EBA published on its website the report on its second impact assessment of the new IFRS 91 standard, which has been applicable since 1 January 2018. This study surveyed approximately 50 European institutions about the quantitative and qualitative impact of the new standard.

The EBA comes to the conclusion that the institutions included in the survey have made significant progress in implementing the new standard compared with the first exercise conducted at the beginning of 20162. There was, however, still evidence that, in terms of implementation, small institutions were lagging behind the larger ones.
Similar to the first round of the survey, the quantitative impact was mainly attributable to the new impairment requirements and less to the new classification and measurement requirements. On average, European institutions expect provisions to increase by 13%. The CET1 ratio3 of the European institutions decreased by an average of up to 45 basis points.

IFRS 17 "Insurance Contracts"

On 18 May 2017, after several years of consultations, the International Accounting Standards Board (IASB) published IFRS 17 "Insurance Contracts". The new standard replaces the old interim standard, IFRS 4, which has been applicable since 2004. When it enters into force on 1 January 2021, it is intended to give users of financial statements and investors a better understanding of the risks and profitability of insurers. At the same time, it is intended to make comparisons of different insurers easier. One milestone in this process is the measurement of insurance contracts, which will no longer be made at historical cost, but at fair value, determined on the basis of the discounted best estimate plus a risk margin and a contractual service margin.

By the end of 2018, the European Financial Reporting Advisory Group (EFRAG)4 will prepare a final proposal for adoption into European law (endorsement). BaFin is closely involved in this process. In addition, it is deeply engaged in analysing the interaction between Solvency II (the supervisory regime already applicable in Europe) and the new IFRS 17. An interesting aspect of this process is the extent to which the two regimes prescribe different treatment for the same issues.

  1. 1 The abbreviation stands for "International Financial Reporting Standard". IFRSs are issued by the International Accounting Standards Board (IAIS).
  2. 2 See 2016 Annual Report, page 79 f.
  3. 3 CET1 stands for Common Equity Tier 1 capital.
  4. 4Established in 2001, EFRAG is a non-profit association under Belgian law. Its registered office is in Brussels. Its primary objective is to assist the European Commission in the process of endorsing IFRSs.

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